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Understanding the Evolving Incentives Landscape

Key trends across the states indicate a continued effort to lure new businesses with incentives, but there’s a sustained focus on transparency and ensuring a return on investment for taxpayers.

Q2 2019
Economic development in the United States is driven by a number of economic, political, and social factors. One of the key factors in companies’ ultimate location decisions are economic development incentives. While incentives are rarely the primary factor, they can very well play a key role in a company’s final location choice.

Every day, economic development projects are supported with incentives, which can come in many different shapes and forms, including a state corporate income tax credit, a workforce training grant, or even an investment in public infrastructure. With pre-approved processes and approval procedures in place, the vast majority of economic development incentives move forward with little to no attention and interest from the general public.

However, over recent months, economic development incentives have been on the forefront of a number of high-visibility U.S. projects — none more so than Amazon’s HQ2 project, which suffered a derailment in New York City, and Foxconn’s project in Wisconsin, where job creation numbers are still up in the air. Both of these projects initially represented significant investments with historic levels of job creation.

Despite controversy, economic development incentives will certainly continue to be a critical part of any corporate location decision. Elected officials and policymakers are not pulling back from their support for business, but their tactics for doing so will continue to evolve. As we’ve seen over the past year, a sustained focus throughout state capitals will be on transparency and ensuring a return on investment for taxpayers. Most corporate leaders understand the need for these policies, as long as proprietary data is protected, and burdensome regulations do not become a long-term risk for the business.

With a shift in political leadership across the country following the 2018 mid-term elections, business executives will be closely watching the policies of newly elected officials in driving economic development. New governors in states like Illinois and Florida, both of which have had controversial incentive situations in recent years, will provide a fascinating view into the future of economic development and, ultimately, the competitiveness of their respective states.

As many will focus on the national battle this coming year with the upcoming primary clash for the White House, the ongoing battle across the country will wage on between states competing for business. Whether garnering the media’s attention or not, economic development incentives will remain a key element of the fight.

Michigan — Prior to handing over the keys to the governor’s mansion, Governor Rick Snyder signed several bills into law impacting business and regulatory policies. One of those bills set forth new incentive evaluation procedures for incoming Governor Gretchen Whitmer’s administration. Referred to as the Economic Development Incentive Evaluation Act, the new law requires the state’s Department of Technology, Management, and Budget (DTMB) to hire a contractor to complete an extensive evaluation of awarded incentives. Once the evaluation is undertaken, the results are to be made publicly available.

One of the key factors in companies’ ultimate location decisions are economic development incentives. Tennessee — Volunteer State lawmakers are set to debate new legislation to enact more expansive transparency and stringent accountability for incentives. The bill, the Fair Accountability and Clarity in Tax Subsidies Act (FACTS Act)¸would establish a process for making incentive information more available to the public. Further, the legislation would expand the ability for the state to make incentives subject to clawbacks, particularly the robust FastTrack program, which reportedly allocates $115 million per year.

Help Wanted! Recruiting Remote Workers
New Hampshire — Lawmakers in the Granite State are considering legislation aiming to encourage recent college graduates to remain in New Hampshire following school. Known as the New Hampshire College Graduate Retention Incentive Partnership (NH GRIP), the proposed bill would establish a program providing annual payments of no less than $1,000 for the first four years following graduation. To directly address the vast challenges of student loans, the incentive recipient may have the funds directly remitted to the entity servicing their loan.

Utah — To drive employment in the state’s rural counties, Utah lawmakers established the Rural Economic Development Initiative (REDI) and Rural Online Initiative (ROI). Through these programs, businesses can receive incentives for creating new remote jobs in eligible rural Utah counties. If the new employees are receiving above average wages, the business could capture a REDI grant of $4,000 to $6,000 per new job. Meanwhile, through ROI, the state is investing in educational and training programs to support individuals seeking to work in these remote positions.

Vermont — In a follow up to the remote worker incentive announced last year, Vermont Governor Phil Scott has proposed a new $5,000 incentive for relocating to the Green Mountain State. Outlined in his annual budget, the plan would allocate $1 million to fund the program annually, which would not set limitations on the types of workers. Governor Scott proposed $2.5 million in total for efforts to target marketing and recruiting of people to move to Vermont.

Targeting Industries: Data Centers
Arizona — Citing the Grand Canyon State’s robust data center use tax exemption program, Stream Data Centers recently announced a 157-acre project in Goodyear. This program allows companies investing at least $25 million ($50 million in Maricopa and Pima counties) in eligible data center equipment to receive exemptions for transition privilege tax and use tax for up to 20 years.

Despite controversy, economic development incentives will certainly continue to be a critical part of any corporate location decision. Indiana — In an effort to lure a major data center project, Hoosier State lawmakers are working on legislation to develop a new targeted tax incentive. If approved, the new law would allow a county or municipality to designate an area for data center development. A qualifying investment, which would be a minimum of $25 million in certain enterprise information technology equipment within five years, could warrant an exemption on personal property tax and sales tax. Minimum investment levels would vary between $25 million and $150 million, dependent upon the proposed location. The Indiana Economic Development Corporation would be tasked with certifying the investments.

Investing in Rural Communities
North Carolina — Governor Roy Cooper recently released his recommended budget for 2019–2021, which he dubbed Investments for a Determined North Carolina. A core piece of the proposed spending plan is centered on investment in rural North Carolina. In total, Governor Cooper’s proposal would allocate $145 million for rural economic development, including a new program, the Rural Investments Strengthening Economies (RISE) Program, which will set aside $15 million over two years for new and expanding businesses. Additionally, the proposal leverages $13 million for infrastructure support and another $55 million for locally driven economic development projects.

South Carolina — Similar to their northern neighbors, lawmakers in South Carolina are proposing significant investments in the state’s rural counties. Proposed in the South Carolina House, $85 million would be allocated to the state’s Commerce Department to be spent in blighted, rural regions. The allocated funding could be used for a multitude of economic development purposes, including business attraction and infrastructure development.

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